"HOUSE OF LORDS Select Committee on Economic Affairs 1st Report of Session 2007–08
The Economic Impact of Immigration
Volume I: Report
Ordered to be printed 18 March 2008 and published 1 April 2008
Published by the Authority of the House of Lords London : The Stationery Office Limited £price
HL Paper 82-I
The Economic Affairs Committee
The Economic Affairs Committee is appointed by the House of Lords in each session with the orders of reference “to consider economic affairs”.
Current Membership
The members of the Economic Affairs Committee are: Lord Best Lord Griffiths of Fforestfach Lord Kingsdown Lord Lamont of Lerwick Lord Lawson of Blaby Lord Layard Lord Macdonald of Tradeston Lord MacGregor of Pulham Market Lord Moonie Lord Oakeshott of Seagrove Bay Lord Paul Lord Sheldon Lord Skidelsky Lord Turner of Ecchinswell Lord Vallance of Tummel (Chairman) Lord Wakeham
Information about the Committee
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CONTENTS
Paragraph Page
Abstract Chapter 1: Introduction The UK’s immigration debate Objectives and key issues Chapter 2: Key Features of Immigration and Immigrants in the UK Past and future net immigration and population growth Projections Key features of recent migration to the UK A profile of immigrant workers in the UK Improving data on immigration and migrants Chapter 3: Impacts on the Labour Market and Macro-Economy Impacts of immigration on the resident population in theory Empirical evidence for the UK GDP per capita Wages Unemployment Training and apprenticeship Macro-impacts: Inflation and unemployment Chapter 4: Immigration and Labour Shortages Immigration and vacancies Immigrants’ work ethic Price adjustments and other alternatives to immigration Chapter 5: Impacts on Public Services and Public Finance Existing estimates of net fiscal impacts Uncosted externalities: Impacts on public services Education Health Funding for local councils Impacts on pensions Chapter 6: Rising Population Density: Impacts on Housing and Wider Welfare Issues Demand for housing House prices and rental market Housing conditions, homelessness and social housing Wider welfare issues Chapter 7: Immigration Policy Objectives and limitations of UK immigration policy Key issues in the current reform of the UK’s immigration policies Points-based system 1 1 4 9 13 16 22 29 39 44 53 62 62 70 80 86 94 99 103 105 109 125 128 135 139 145 149 152 159 161 165 173 181 186 186 196 198
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Temporary or Permanent? Chapter 8: Conclusions and Recommendations Key features of immigration and migrants in the UK Impacts on the labour market and macro-economy Immigration and labour shortages Impacts on public services and public finance Rising population density: Impacts on housing and wider welfare issues Immigration Policy Appendix 1: Economic Affairs Committee Appendix 2: List of Witnesses Appendix 3: Call for Evidence Appendix 4: Immigration—public opinion and numbers Appendix 5: Components of population growth in the UK, 1971–2006 Appendix 6: Stocks of foreign-born population in selected OECD countries Appendix 7: Projected population growth by country 2006–2081 Appendix 8: Rights and restrictions for different types of immigration status of non-EEA migrants Appendix 9: Measuring and predicting immigration from Eastern Europe Appendix 10: Immigration rules and recent statistics Appendix 11: Immigration policy in the UK before the new points-based system Appendix 12: The new points-based system Appendix 13: Glossary
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NOTE: (Q) refers to a question in oral evidence (p) refers to a page of written evidence
The Report of the Committee is published in Volume I, HL Paper 82-I. The Evidence of the Committee is published in Volume II, HL Paper 82-II
ABSTRACT Immigration has become highly significant to the UK economy: immigrants comprise 12% of the total workforce—and a much higher proportion in London. However, we have found no evidence for the argument, made by the Government, business and many others, that net immigration—immigration minus emigration— generates significant economic benefits for the existing UK population. Overall GDP, which the Government has persistently emphasised, is an irrelevant and misleading criterion for assessing the economic impacts of immigration on the UK. The total size of an economy is not an index of prosperity. The focus of analysis should rather be on the effects of immigration on income per head of the resident population. Both theory and the available empirical evidence indicate that these effects are small, especially in the long run when the economy fully adjusts to the increased supply of labour. In the long run, the main economic effect of immigration is to enlarge the economy, with relatively small costs and benefits for the incomes of the resident population. The economic impacts of immigration depend critically on the skills of immigrants. Different types of immigrant can have very different impacts on the economy. The issue is not whether immigration is needed but what level and type of immigration is desirable. In this context, net immigration from the EU—which we expect to remain positive—cannot be controlled. The question then is whether additional immigration from elsewhere carries benefits or disadvantages. Many businesses and public services at present make use of the skills and hard work of immigrants. But this is not an argument for immigration on a scale which exceeds emigration and thus increases the population of the country. We do not support the general claims that net immigration is indispensable to fill labour and skills shortages. Such claims are analytically weak and provide insufficient reason for promoting net immigration. Vacancies are, to a certain extent, a sign of a healthy economy. Immigration increases the size of the economy and overall labour demand, thus creating new vacancies. As a result, immigration is unlikely to be an effective tool for reducing vacancies other than in the short term. We also question the Government’s claim that immigration has generated fiscal benefits. Estimates of the fiscal impacts are critically dependent on who counts as an immigrant (or as a descendant of an immigrant) and on what items to include under costs and benefits. The overall fiscal impact of immigration is likely to be small, though this masks significant variations across different immigrant groups. Rising population density has potentially important economic consequences for the resident population, including impacts on housing, as well as wider welfare effects, especially in parts of England where immigrants are most concentrated. Although immigration is only one of a number of factors affecting the demand for housing, it does exert a significant impact on the housing market in particular areas. Some of the wider impacts from rising population are hard to measure and highly regional. Some, such as the impact of increasing population density on the cost and speed of implementation of public infrastructure projects, remain poorly understood.
Arguments in favour of high immigration to defuse the “pensions time bomb” do not stand up to scrutiny as they are based on the unreasonable assumption of a static retirement age as people live longer and ignore the fact that, in time, immigrants too will grow old and draw pensions. Increasing the retirement age, as the Government has done, is the only viable approach to resolving this issue. There are significant unknowns and uncertainties in the existing data on immigration and immigrants in the UK. There are insufficient data about people leaving the UK and about short-term immigration to the UK. Existing data do not allow for accurate measurement of the stock of immigrants at national, regional and local levels. Inevitably, even less is known about the scale of illegal immigration and illegal employment of immigrants. The gaps in migration data create significant difficulties for the analysis and public debate of immigration, the conduct of monetary policy, the provision of public services and a wide range of other public policies. Our overall conclusion is that the economic benefits to the resident population of net immigration are small, especially in the long run. Of course, many immigrants make a valuable contribution to the UK. But the real issue is how much net immigration is desirable. Here non-economic considerations such as impacts on cultural diversity and social cohesion will be important, but these are outside the scope of our inquiry. Against this background, we have identified the following priorities for Government action. The Government should: • improve radically the present entirely inadequate migration statistics; • review its immigration policies and then explain, on the basis of firm evidence on the economic and other impacts, the reasons for and objectives of the policies, and how they relate to other policy objectives such as improving the skills of the domestic workforce; • better enforce the minimum wage and other statutory employment conditions, with effective action taken against employers who illegally employ immigrants or who provide employment terms which do not meet minimum standards; • clarify the objectives and implications of the new, partially points-based immigration system. It is far from clear that the new arrangements will in fact constitute the radical overhaul of the present system suggested by the Government; • monitor immigration by publishing periodic Immigration Reports giving details of the numbers and characteristics of non-EEA nationals entering the UK under each Tier of the new system; • give further consideration to which channels of immigration should lead to settlement and citizenship and which ones should be strictly temporary; • review the implications of its projection that overall net immigration in future years will be around 190,000 people. The Government should have an explicit and reasoned indicative target range for net immigration and adjust its immigration policies in line with that broad objective.
The Economic Impact of Immigration
CHAPTER 1: INTRODUCTION The UK’s immigration debate 1. Immigration has become one of the biggest public policy issues in the UK. Net immigration—defined as immigration minus emigration from the UK— of non-British persons trebled from less than 100,000 per year in the early 1990s to over 300,000 in 2006, reaching a scale unprecedented in our history.1 Over the same period, the share of adults who considered “immigration and race relations” as the most important issue facing Britain increased from less than 5% to over 40% (see Appendix 4).2 For most of 2006 and 2007, immigration was the number one issue of concern to the British public, more important than law and order, the National Health Service (NHS) and international terrorism.3 Net immigration, rather than natural change (births minus deaths), has been the main driver of UK population growth since the early 1990s (see Appendix 5). The UK population is now projected to grow from 60.6 million in 2006 to 71 million in 2031. More than two thirds of this growth is attributable, directly or indirectly,4 to future net immigration.5 Given the long-term demographic impacts of, and rising public concern about, the rapid increase in immigration, there is a need for a comprehensive debate about the economic, social and cultural impacts of immigration. Consideration of the economic impacts, with which this report is concerned, must include a critical assessment of the Government’s economic case for immigration which has been largely based on three arguments: (i) immigration generates large economic benefits for the UK because it increases economic growth; (ii) immigrants are needed to fill labour and skills shortages and do the jobs that British workers will not do; and (iii) immigration generates fiscal benefits for the UK. The Government’s highly positive assessment of the economic impact of immigration on the UK contrasts with the more mixed views of the public. About 37% of the public agree that “immigration is good for the British economy”, but 40% disagree. A quarter of the public think that “we need more immigrants to do the jobs that British people don’t want to do”, but half do not think so.6
ONS, Total International Migration (TIM) Tables, 1991–2006 Ipsos MORI 2007a, http://www.ipsos-mori.com/polls/trends/issues.shtml#2007 Ipsos MORI 2007b, http://www.homeoffice.gov.uk/documents/moripolls0607/BIA_6_monthly_Topline_Resul1.pdf?view=Binary This new survey asks, for the first time, specifically about “immigration” rather than about “immigration and race relations” in general. Net immigration impacts on population growth directly by increasing the number of people, and indirectly through its impact on fertility rates. GAD, Migration and Population Growth, http://www.gad.gov.uk/Demography_Data/Population/2004/methodology/mignote.asp , accessed on 10 Feb 2008 Source: Ipsos Mori poll of 1,000 adults aged 16+ in Britain, May–June 2007, available at the Home Office website
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THE ECONOMIC IMPACT OF IMMIGRATION
Objectives and key issues 4. This report addresses key questions about the economic impacts of immigration on the resident population in the UK. To be as transparent as possible in what has often been a fairly confused debate, it is important to clarify at the outset some basic definitions and the scope of the inquiry. For the purpose of this report, “economic impacts” are defined broadly to include impacts on public services and economic consequences of rising population density, but the report does not discuss the impacts of immigration on cultural diversity and social cohesion7 (although there may be associated economic impacts). “Immigrants” are defined as foreign-born persons or, where data for foreign born are not available, as foreign nationals (that is, persons without British citizenship). The term “resident population” is meant to indicate a focus (although not an exclusive one) on the impacts of immigration on the pre-existing population (that is, on the population residing in the UK before the arrival of new immigrants) rather than on immigrants or their countries of origin. Finally, the report focuses on the impacts of immigration for the UK as a whole, although some regional differences—important both in terms of the number and impacts of immigrants—are highlighted. The choice of questions addressed in this report reflects the key themes in Britain’s growing immigration debate as well as the arguments made by Government over the past ten years: • What do we know about the scale, characteristics and demographic impacts of recent immigration? (chapter 2) • How does immigration impact on the incomes and living standards of the resident population? (chapter 3) • Is there a need for immigrant workers to fill labour and skills shortages? (chapter 4) • Does immigration generate fiscal benefits for the UK? (chapter 5) • What are the economic impacts of rising population density? (chapter 6) • What conclusions do we draw for the UK’s immigration policies? (chapter 7) 6. The discussion of these issues is based on a critical review of existing theories and evidence rather than on new data and research. The inquiry has generated more than 70 pieces of written evidence, and another 35 pieces of oral evidence, from a wide range of people and institutions in and outside the UK, including academics, think tanks, employers associations, trades unions, NGOs, local government and government departments across the UK.8 A recurring theme of our inquiry, highlighted at various points in this report, is the serious inadequacy of the existing data on immigration, emigration and the stock of immigrants in the UK. The lack of reliable and more complete data makes it very difficult to assess the scale, characteristics and impacts of immigration.
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The impact of migration on community cohesion is currently the subject of a separate inquiry by the Communities and Local Government Committee of The House of Commons. See: http://www.parliament.uk/parliamentary_committees/clg/clgsubccm_200708.cfm The evidence is available in volume II of this report, HL 82-II
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THE ECONOMIC IMPACT OF IMMIGRATION
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While our inquiry has assessed the overall economic impact of immigration, it is important to bear in mind that as a member of the European Union, the UK cannot regulate the number or selection of nationals of the European Economic Area (EEA)9 entering the country. Most EEA nationals also have the automatic right to work in the UK. Asylum seekers have rights to humanitarian protection in the UK by virtue of international human rights treaties. This leaves as the major area of discretionary policy the entry of non-EEA nationals other than asylum seekers. When such nationals come to reside here, they have the right to bring their families with them. We do not discuss what these rights should be, but when considering the entry of foreign workers allowance must also be made for the fact that many of them will bring families with them. The economic impact on the resident population should be a central criterion for regulating the immigration and employment of these non-EEA, non-asylum seekers wishing to come here.
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EU 27 and Iceland, Liechtenstein and Norway
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THE ECONOMIC IMPACT OF IMMIGRATION
CHAPTER 2: KEY FEATURES OF IMMIGRATION AND IMMIGRANTS IN THE UK 9. This chapter reviews key features of the scale, characteristics and demographic impacts of recent migration to the UK. Although necessary to understand the economic impacts of immigration, the discussion comes with a strong health warning: the existing data about gross and net immigration flows to the UK, and about the stock of immigrants in the UK, are seriously inadequate. The National Statistician, Karen Dunnell, told us that “there is now broad recognition that available estimates of migrant numbers are inadequate to meet all the purposes for which they are now required. They are the weakest component in population estimates and projections in the United Kingdom, both nationally and at local level” (p 35). The Statistics Commission, which monitors official figures, described the available statistical information on immigration as “weak” (p 505). Among the numerous reasons for the inadequacy of the current data, four stand out. First, there are insufficient data about people leaving the UK. The available annual emigration estimates are based on annual samples of fewer than 1,000 migrants leaving the UK. Second, very few data exist on shortterm migration to the UK. The available data on gross and net immigration flows include only those immigrants who say they intend to stay for longer than 12 months (defined by the Office for National Statistics (ONS) as “..."
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